How Much Auto Insurance Do You Carry?

[Barrister]

The point of insurance though isn't to cover "reasonably expected" needs, or at least it's not the only purpose of insurance.  It's to cover against very remote but catastrophic possibilities.

I'm a safe driver - no tickets or claims in over ten years.  But it only takes a moments inattention to get into an accident, and if you have a really unlucky result you can have someone who is permanently disabled as a result.

The question is how much of the tail of the probability distribution one wants to cover.  Obviously even with a mill you're not covering 100% of risk.

You sure about that legal minimum you mentioned earlier?  Other Canadians are giving different answers.

100%.  I googled it beforehand.  For Alberta only though.

I have $2 mil coverage.And yes, it doesn't cover absolutely 100% of the risk.  But I do have some experience in this area, having done some insurance defence.  Claims above the minimum ($200k) aren't common, but they aren't rare either.  Claims above $1 mil are exceedingly rare, above $2 mil even more so.

[OttoVonBismarck]

Our systems are quite different.  If one follows this advice, not only will the award be fairly low, by American standards, but you will also be dinged for the contributory negligence of your act.  We dont settle to the level of insurance.  That level is there for the horrible hypothetical that, hopefully, will never occur but we have the coverage - at a low price - in case it does occur.

I dont quite understand why you folks have such low coverage given the large amounts of potential awards in the US.  Bankruptcy isnt that big of a deal?

Exactly what large payouts are you talking about? It's exceedingly rare for a large payout to be awarded in a case between two "ordinary citizens." Large payouts almost always come when someone is suing a wealthy individual or a company. The rare cases where someone gets a large payout against an individual it's mostly for show, like awhile back there was a case where some random idiots beat a guy half to death and his family got like a $10m judgment against them. They have no assets and have never earned much above minimum wage, it's a pointless/meaningless judgment.

There's a lot of things legally protected from large judgments here, too. So even a middle class guy who owns a house and has a nice 401k balance, in many states those are protected from things like legal judgments so if you take that away he doesn't really have a lot of assets or income to go after. That's why you typically see them go after the insurance cap and leave it at that.

A coworker of mine, her 65 year old father who had $12.5k/25k/12.5k (minimum liability insurance in Ohio) tore down two utility poles in his car. The cost to the city to replace them was $22,000, they settled for the $12.5k because that was his maximum insurance payout. They did not even investigate or look into whether he could pay for more beyond that. That's pretty typical in most situations.

[Barrister]

Our systems are quite different.  If one follows this advice, not only will the award be fairly low, by American standards, but you will also be dinged for the contributory negligence of your act.  We dont settle to the level of insurance.  That level is there for the horrible hypothetical that, hopefully, will never occur but we have the coverage - at a low price - in case it does occur.

I dont quite understand why you folks have such low coverage given the large amounts of potential awards in the US.  Bankruptcy isnt that big of a deal?

Exactly what large payouts are you talking about? It's exceedingly rare for a large payout to be awarded in a case between two "ordinary citizens." Large payouts almost always come when someone is suing a wealthy individual or a company. The rare cases where someone gets a large payout against an individual it's mostly for show, like awhile back there was a case where some random idiots beat a guy half to death and his family got like a $10m judgment against them. They have no assets and have never earned much above minimum wage, it's a pointless/meaningless judgment.

There's a lot of things legally protected from large judgments here, too. So even a middle class guy who owns a house and has a nice 401k balance, in many states those are protected from things like legal judgments so if you take that away he doesn't really have a lot of assets or income to go after. That's why you typically see them go after the insurance cap and leave it at that.

A coworker of mine, her 65 year old father who had $12.5k/25k/12.5k (minimum liability insurance in Ohio) tore down two utility poles in his car. The cost to the city to replace them was $22,000, they settled for the $12.5k because that was his maximum insurance payout. They did not even investigate or look into whether he could pay for more beyond that. That's pretty typical in most situations.

I can understand why the city chose to take the easy $12.5k when the difference is only $10k more.

But let me paint you a picture: nice middle class guy owns a home, has a RRSP, respectable income, owns his own vehicle.  Has $200k minimum coverage.  In a moments inattention he runs a red light, and t-bones another vehicle.  Vehicle passenger snaps a vertebrae, becoming paralyzed.  Spends six months in hospital, months more in physio, unable to sexually perform, employment prospects severely diminished (was working at a high paying but physically demanding job).

Very roughly, his damages are for pain and suffering (capped at $300k, but that's still above minimum coverage), loss of wages (the real killer - lets say $80k for 20 years - 1.6 million), loss of "companionship" to the wife, costs of physio, housekeeping.  Total damages $2 mil.

Insurance pays out the $200k immediately and essentially fails to defend the claim.  Defence gets a judgment for $1.8 mil.  Now you're right, their lawyer isn't going to take heroic actions to enforce the claim.  But the guy does have assets worth going after.  They slap a judgment on the house - now if it is ever going to be sold they get the proceeds (minus first mortgage being paid out).  Slap a judgment on the car (same thing).  They garnishee his wages from his employer - the real killer.  Now every cent te guy earns (above a certain minimum) goes to the victim.  RRSP/401k - not sure here.  The asset itself might be protected.  But once you try to withdraw funds, now they're subject to garnishment.

Obviously there is a certain % of the population that is judgment proof - they own no property, job pays very little (or is paid in cash  ).  But an awful lot of people would have something to lose.

[Admiral Yi]

The State Farm dude I spoke to suggested the US (Iowa?) cap is garnishment of 20% of wages.

Which, just based on the sensational award stories that make the news, doesn't seem to happen very often.

[Grey Fox]

Our systems are quite different.  If one follows this advice, not only will the award be fairly low, by American standards, but you will also be dinged for the contributory negligence of your act.  We dont settle to the level of insurance.  That level is there for the horrible hypothetical that, hopefully, will never occur but we have the coverage - at a low price - in case it does occur.

I dont quite understand why you folks have such low coverage given the large amounts of potential awards in the US.  Bankruptcy isnt that big of a deal?

Exactly what large payouts are you talking about? It's exceedingly rare for a large payout to be awarded in a case between two "ordinary citizens." Large payouts almost always come when someone is suing a wealthy individual or a company. The rare cases where someone gets a large payout against an individual it's mostly for show, like awhile back there was a case where some random idiots beat a guy half to death and his family got like a $10m judgment against them. They have no assets and have never earned much above minimum wage, it's a pointless/meaningless judgment.

There's a lot of things legally protected from large judgments here, too. So even a middle class guy who owns a house and has a nice 401k balance, in many states those are protected from things like legal judgments so if you take that away he doesn't really have a lot of assets or income to go after. That's why you typically see them go after the insurance cap and leave it at that.

A coworker of mine, her 65 year old father who had $12.5k/25k/12.5k (minimum liability insurance in Ohio) tore down two utility poles in his car. The cost to the city to replace them was $22,000, they settled for the $12.5k because that was his maximum insurance payout. They did not even investigate or look into whether he could pay for more beyond that. That's pretty typical in most situations.

I can understand why the city chose to take the easy $12.5k when the difference is only $10k more.

But let me paint you a picture: nice middle class guy owns a home, has a RRSP, respectable income, owns his own vehicle.  Has $200k minimum coverage.  In a moments inattention he runs a red light, and t-bones another vehicle.  Vehicle passenger snaps a vertebrae, becoming paralyzed.  Spends six months in hospital, months more in physio, unable to sexually perform, employment prospects severely diminished (was working at a high paying but physically demanding job).

Very roughly, his damages are for pain and suffering (capped at $300k, but that's still above minimum coverage), loss of wages (the real killer - lets say $80k for 20 years - 1.6 million), loss of "companionship" to the wife, costs of physio, housekeeping.  Total damages $2 mil.

Insurance pays out the $200k immediately and essentially fails to defend the claim.  Defence gets a judgment for $1.8 mil.  Now you're right, their lawyer isn't going to take heroic actions to enforce the claim.  But the guy does have assets worth going after.  They slap a judgment on the house - now if it is ever going to be sold they get the proceeds (minus first mortgage being paid out).  Slap a judgment on the car (same thing).  They garnishee his wages from his employer - the real killer.  Now every cent te guy earns (above a certain minimum) goes to the victim.  RRSP/401k - not sure here.  The asset itself might be protected.  But once you try to withdraw funds, now they're subject to garnishment.

Obviously there is a certain % of the population that is judgment proof - they own no property, job pays very little (or is paid in cash  ).  But an awful lot of people would have something to lose.

No Fault 

[Barrister]

No Fault 

There's something to be said for a no-fault system.

Only risk is that since in Quebec (and Manitoba) since the government runs both the no-fault system, and the insurance business, there's an incentive to simply short-change accident victims in order to save everyone else money.

[Grey Fox]

That's pretty much what happens.

[sbr]

re: personal liability:--It's sorta off topic, but in order to rent out my condo, I was told I needed to get $1M liability, minimum.  In case a sprinkler escutcheon slices somebody's skull open and they die slowly.

One of my favorite words.